(Bloomberg) — The brewing trade war between China and the U.S. is claiming commodity markets as one of its first victims.
The Bloomberg Commodities Index, a measure of 26 raw materials, lost 2.7 percent this week, the most since February. The losses stand out in a week when other risk assets, like emerging-market stocks, were in the green.
Soybeans have been hardest hit, with pricing falling to the lowest in almost a decade as China’s duties on U.S. supplies took effect. Metal and energy markets were also caught by fears that the trade spat will set off a global economic slowdown. Earlier this week, copper prices sank to almost a one-year low.
China, the biggest consumer of everything from copper to coal, has warned that the proliferation of tariffs could cause a global recession.
Economy Week: Trade War Sparks Mounting Concerns of Growth Risks
“We have so many shorts in the market that there is a real possibility of a squeeze occurring next week,” said Oliver Nugent, a commodities strategist at ING Bank NV.
He said the trade dispute, and ensuing losses in commodities, are likely to remain until after the U.S. midterm elections in November. “We don’t think Trump necessarily has the incentive to dial back,” he said.
“We don’t think Trump necessarily has the incentive to dial back.”
Traders are also closely studying data from China for evidence of a slowdown. On Friday, reports showed weaker-than-expected growth in imports, and indicators of investment, factory output and retail sales growth all slowed in May.
“Chinese import data wasn’t particularly positive, so there are all these concerns about the second half,” said Alastair Munro, an analyst at Marex Spectron. “If the trade-tariff war continues to escalate, then obviously it’s not going to help.”
The main market movers include:
Copper
Often regarded as an economic bellwether, the metal has taken a beating in the past month. Prices are poised for a fifth weekly loss, the longest such slump since 2015.
Traders will be watching today’s U.S. commitment of traders report for signs that speculators are continuing to cut their positions. Last week, the net-long position was the least bullish in three months.
Oil
Futures in New York have plunged 4.2 percent to $70.70 a barrel this week. Short-term bearish signals for oil prices on the supply side include Libya restarting a key oil field that had been shut since February, tempering the International Energy Agency’s warning that spare capacity may be stretched to the limit.
Soybeans
Soybean prices lost 6.5 percent this week. China’s imports of the oilseed are likely to decline for the first time in 15 years.
Mining stocks
The Bloomberg World Mining Index is poised for a fifth straight weekly loss. Glencore Plc, the world’s biggest commodities trader, lost 4.7 percent.
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Rolling back environmental regulations and speeding up permitting for oil and gas as well as mining projects could put pressure on Canada to do the same.
